When you register your business with Companies House, you will have the added protection of limited liability. This means any debts which are associated with your business is limited to how much you have invested into the business. Therefore, any finances of the business are separate from the finances of the people who own and manage the business. For that reason, it should be noted that a limited company becomes a separate legal entity when it is registered at Companies House
If your business becomes bankrupt or has had any legal action taken against it, you will only be responsible for any debts to value of your shares or personal guarantees.
Nevertheless, you will need to consider that limited liability does not provide you with 100% protection. If you are guilty of any fraudulent trading or partake in any other criminal acts while carrying out your company-related duties, you may be held liable and could face prosecution.

Limited liability of shareholders and guarantors

Private companies limited by shares and public limited companies (PLCs) are owned by shareholders or members who usually have one or more shares in the company. Therefore, the liability of shareholders is decided by the value of shares each of them have invested into the company. If they have already paid for their shares, they should have no further financial liability to the company. Private companies limited by guarantee are owned by guarantors. For that reason, each guarantor has a personal guarantee in the company and have agreed to pay a fixed sum of money to the company if it becomes bankrupt.

Limited lability of company directors

Directors often do not have any personal liability towards any company they manage, unless they are members too or have any personal guarantees to the company’s creditors, commercial landlords, or when entering any other type of business contract on behalf of the company.
However, in some instance’s directors can be held personally liable by the courts or have legal action taken against them by lenders, suppliers, clients, employees, members of the public, government agencies such as Companies House and HMRC and other individuals or businesses.

Are there any exceptions to limited liability?

Limited liability does not apply to all situations and can be lost because of negligence or criminal acts. Some examples that company directors may be held liable for include:

  • Failing to file confirmation statements and company accounts
  • Not keeping statutory company records or registers
  • Choosing not to disclose any conflicts of interest
  • Using company funds for personal use

Many of these situations can be avoided. Therefore, it is important for directors to have insurance to protect your company against any third-party claims and other legal issues.
The most popular types of insurance for limited companies and directors include:

  • Public Liability insurance
  • Employers’ Liability insurance
  • Professional indemnity insurance
  • Directors’ & Officers’ Liability insurance

Company directors are responsible for making sure they have the necessary insurance policies in place. By doing so, directors can protect the interests of the company and its members by helping to lessen the risk of personal liability.

Do Sole traders have limited liability?

The liability of sole traders is different because the law treats the owner and the business as one and the same. This means that sole traders have unlimited liability and are responsible for all the business debts and legal claims.
This is one of the main reasons why setting up a limited company is the preferred choice for many business owners in the UK.

Register your limited company today with Fast Form Online.